Adam Smith, who is considered to be the father of economics, called lottery a “tax on stupidity”. Why? Because the odds of winning are so low that you have a better chance of getting hit by lightening several times. In other words, it is stupid to participate in a game where your odds of losing are millions of times higher than your odds of winning.
What would happen if you decide to invest your lottery money instead of buying lottery tickets? In 2009, an average Canadian adult spent $549 on gambling per year. If you invest $549 every year in a fund that pay 5% annually, you will end up with $74,146 dollar in 40 years. Not as exiting as winning $20 million dollars, is it. But at least, now you know how much your gambling habit will cost you.
The average annual return of S&P 500 index over the longer term in about 10% per year. If you invest your lottery money there, you can expect $321,219 over 40 years. This still cannot beat $20 million dollars but you can buy a modest property with this amount and this time the odds are in your favor.
What if the market crashes. If you are investing for the long term, see market crashes as buying opportunities where stocks are selling at a discount. Eventually the market recovers and you can cash out your money. Individual stocks may or may not recover but markets recover from crashes.
So what did you choose; guaranteed odds of $74,146, good odds of earning $321,219, or bleak odds of $20 million?
